The Global Fast-Food Industry

Colonel Harland Sanders signed up his outset franchise in Salt Lake City, Utah in 1952. In 1956 he sold the Corbin, Ky. eating house he owned, and began traveling across the United States to sell new franchises. by and by that class he sold his first global franchise in Canada. By 1960 there were more than 200 Colonel Sanders Recipe Kentucky Fried chicken (KFC) issuances. In 1963 revenues were everyplace $500 one thousand thousand and the frame of outlets had increased to over 300. In 1974 at the age of 74, he sold the line of merchandise to jackfruit Massey and John Brown for $2 million, one of the great bargains in ancestry history. The Colonel stayed on with the company in a ceremonial role, often circumstances to open new franchises.Brown and Massey grew the business end-to-end the United States over the close several(prenominal) forms and in 1966 took the company public, listing it on the New York Stock Exchange and the Colonel was all toldowed to purchase th e first 100 sh atomic account 18s. The year 1969 was a crucial one in the history of the company with the first major penetration into international grocery stores outside North the States by acquiring franchises in England and Japan. By 1971, there were more than 2400 franchises and 600 company-owned restaurants spread through and throughout the United States and 47 separate countries.1971 became an early(a) key year in company history with the sale of KFC to Heublein. This was Heubleins first authoritative penetration into the restaurant business and it did not go smoothly. By 1977 restaurant tint had declined and the Colonel was upset. Only about 20 new restaurants were being undetermined per year. In response, Heublein implemented a new strategy emphasizing clean restaurants, crossroad consistency across franchises and better service. Old franchise buildings were remodeled.In 1982 R. J. Reynolds Inc. (RJR), in an attempt to diversify beyond the tobacco business, acquire d Heublein for $1.2 billion. KFC was profitable and growing again, notwithstanding Colonel Sanders never saw the end result of Heubleins strategy in the late 1970s, because he died in 1980. RJR continued to run KFC as an self-directed business for several years. In 1985 it acquired Nabisco and in 1986, in preparation for the later(prenominal) move to take RJR Nabisco private, it sold KFC to PepsiCo Inc. for $840 million, over the objections of former Heublein chairman, Stuart Watson. Also this year the Colonel Sanders Technical Center in Louisville, Kentucky was established.The acquisition by PepsiCo was a significant turning point in the companys history. In introductory acquisitions by Heublein and RJR, KFC had been operated as a separate entity, although in different ways. Heublein tried and true to use its own managers to operate KFC, while RJR adopted a only hands off approach. PepsiCo was looking to the acquisition of KFC to create some synergy within its other operation s. Recently restructured into three major divisions, soft drink, insect bite foods and restaurants, PepsiCo could cross-pollinate between divisions, for instance by selling its soft drinks in restaurants. PepsiCos culture was also much different than KFC. PepsiCo placed a healthful emphasis on employee performance, while KFCs culture was more laid-back in the southern tradition.In 1991 a change was make that was to have unintended consequences. Kentucky Fried chickenhearted decided to change their wee-wee to KFC for several reasons, according to the web site Snopes.com,A move to de-emphasize chicken because KFC planned to offer a varied menu that include other types of food. (The Boston wimp corporation took the alike approach for the same reason, changing their constitute of their retail food outlets to Boston Market.)A passion to eliminate the word fried, which has negative connotations to the increasingly health-conscious consumer mart.A recent social movement towards t he abbreviation of long commercial titles, as demonstrated by other companies employing shortened forms of their names, such as The International House of Pancakes (IHOP) and Howard Johnsons (HoJo).As a result of this name change, rumors later began circulating throughout the internet that the organisation had forced KFC to change its name because it was no longer using chickens. consort to the rumor, KFC was producing a genetically altered chicken with more than the normal numerate of appendages. In spite of the fact that some of these claims, such as chickens without beaks, feathers or feet, ar beyond scientific capabilities, the rumors have persisted.Over the next several years, KFC continued to prosper and undergo changes. It refocused its strategy to increase the traffic in individual franchises by dramatiseing the menu to appeal to a larger concourse of consumers. In 1993 the company added non-fried chicken to menus in the U.S. and Australia, and in 1994 KFC officially opened its 9,000th restaurant in the world, in Shanghai, China, and announced a $200 million investment over the next four years for 200 restaurants in 48 Chinese cities.1995 saw the introduction of Colonels Crispy Strips and Chunky Chicken Pot Pie. The first KFC restaurant in Moscow was opened. In 1996 KFC introduced natural Roast chicken pieces and brought back one of the worlds most recognized packages, the bucket, and in 1997 the company introduced Honey BBQ-flavored Tender Roast, Spicy Buffalo Crispy Strips and Chicken Twister, which are wrapped up chicken and vegetables.In spite of all these innovations and improvements, PepsiCo had become increasingly unhappy with the restaurant division. Aging facilities were requiring much of the resurrect companys revenue to be spent on remodeling restaurants and thereby neglecting investment in the soft drink and snack food businesses. In an attempt to return to its roots, PepsiCo spun off the entire restaurant division into a publicly traded company, Tricon Global eating places in October 1997. In May 2002, with the acquisition of A&W and Long John Silvers, Tricon changed its name to Yum.One of the main strategic produces presented in this case is the question of whether or not KFC should continue to expand globally and where. Since the early days of its inception, KFC has been involved outside the United States, having spread out to Canada in 1956 and then in a major move in 1969, to Japan and England. As of 2000, of the thirty-five largest fast-food chains, KFC was second only to McDonalds in the number countries penetrated. It is an arena where KFC has had enormous success and should continue to be involved.As of 2001 KFC had more than 500 outlets in China compared to only about 400 for McDonalds. KFC sting McDonalds to China by five years, opening their first outlet in Beijing in 1987. Market surveys in China by AC Nielson have indicated a preference for KFC over McDonalds, both in terms of products and t he outlets themselves. In addition, the Chinese have cultural bias in favor of chicken over beef. This is receivedly an area where KFC should continue to execution its expediency.Latin America is another global area where KFC has a strong bearing. In the Central American, Caribbean and Mexican area, KFC is very competitive with McDonalds and Burger male monarch in terms of number of outlets. It has a particularly strong heraldic bearing in Mexico and the Caribbean. Only in the Southern part of Latin America does KFC fall sharply behind McDonalds.With the advent of the North American assuage Trade Agreement (NAFTA) the milieu has changed in Mexico. A helpful constituent is that one of KFCs major suppliers, Tyson Foods, has major chicken facilities in Mexico. The political environment has changed with the election of Vicente Fox. KFCs already strong presence should be expanded aggressively. They should also use this carnal in Mexico as a means of investing capital to further expand the franchise base throughout South America, in order to negate a first-mover expediency by McDonalds and Wendys. Franchise outlets require less capital than company-owned restaurants, and are thus a faster way in which to expand.Anther strategic issue facing KFC is the decision to franchise or expand by company-owned restaurants and whether to refranchise. The authoritative strategy of Colonel Sanders and his immediate successors was to franchise and not build company-owned restaurants. This allowed them to grow quicker than they would have if KFC had primarily invested in company-owned restaurants. This strategy continued until the purchase of KFC by PepsiCo. Because of a clash in corporate culture between KFC and PepsiCo, and the presence of a strong franchisee group within KFC, PepsiCo embarked on a strategy of repurchasing weaker franchises and running them. At the time of the spin-off of KFC and the restaurant division into Tricon Restaurant Group in 1994, the percen tage of company-owned restaurants was about 40%.After the spin-off, Tricon precaution began to divest of many of the company-owned outlets. This was the result of a change in attitude on the part of Tricon management. They did not believe in absolute guard of all aspects of the local business and were willing to admit that the franchisees knew the local business better than they did. By the year 2000, the number of company-owned outlets had dropped to 27%.As shown in the SWOT analysis below, there are a number of factors in the external environment that KFC should consider when formulating and implementing strategies. Some of the more important aspects are brand name awareness, global market expansion, shrinking resources available to outlets and attacks by activistic groups such as PETA.On the positive side, the brand name awareness is a tremendous asset for KFC. The move in 1996 to pull in back the bucket was one of the best decisions in its history. Likewise, global market e xpansion presents an enormous opportunity to KFC to grow. They should build on their existing international base and continue to grow franchises.On the negative side, KFC, along with other fast-food companies, is facing a shrinking of the available potential outlet locations. The proliferation of fast-food outlets in this country has absorbed many of the prime locations. This is another reason to exempt continued overseas expansion, where many prime spots remain. Just as potential locations have dwindled, so too has the labor pool. In spite of increased unemployment since 2000, there is still a problem attracting workers in the xviii to twenty-four year old range.An interesting aspect of the external environment that has negatively impacted KFC has been the virulent attacks on KFC by People for the ethical Treatment of Animals (PETA) and other similar groups. A number of celebrities have coupled the campaign against KFC, which is focused on trying to force them to change the tra nsit of defeathering chickens. KFC has consistently refused to meet with the animal rights group for years, but because of concerns of losing market grapple in the inner city, has recently attempted to mediate this dispute through the offices of hip-hop mogul Russell Simmons and the Reverend Al Sharpton.Examining the list of top cubic decimeter U.S. fast-food restaurants for those sectors and companies that might be beneficial investments we observe several companies that have a dominant position in their section. McDonalds has a 35% market tract among sandwich chains, Pizza Hut has a 44% share among pizza chains, KFC a 55% share among chicken chains, Golden shut in a 32% share among grill buffet chains and Dunkin Donuts a 43% share among non-dinner concepts. Each of these companies would seem to be a good investment over the near term because of that dominant position in their sectors. In addition, financial data available for these companies confirm that the reason from each one is dominant in their sector is because they consistently produce above just financial returns.KFC continues to have a bright outlook for the future. It is well-positioned both domestically and international for continued growth. While it is unlikely ever to overtake McDonalds, both in the domestic or overseas market, it is dominant in certain countries such as China and Mexico, and should be able to leverage this advantage to fend off other competitors, like Wendys and Burger King. Over the next five years look for KFC to have a strong number two position in the industry, particularly if it can address the problems with activist groups.